In a previous post we mentioned the term ACoS as an important metric to track in our PPC campaigns.
But what exactly is ACoS ? It stands for Advertising Cost of Sales, and is the percentage of sales spent on advertising, calculated by dividing total ad spend by sales attributed to ad spend.
The sales attributed to your ad spend are sales generated within one week of clicks to your ad. That is the reason you may look at your ACoS one day and in a few days time it may have changed. Sales reporting is always delayed, so it would be around 10 days before you can say that the reported ACoS in your campaign dashboard is accurate.
ACoS = ad spend ÷ sales so ACoS = $20/$50 your ACoS would be 40%
But the number that you see in your campaign dashboard does not really represent your true and total costs.
Yes, it is a guide to your ad profitability, but you really need to calculate the true ACoS for each of your products.
Here is how ACoS appears in the campaign dashboard
However this number does not take into account the cost of goods sold (COGS in accounting terms) so we need to know the following numbers in order to understand what the true ACoS is:
Selling Price of your products
Cost of Goods Sold per unit
Cost of Shipping per unit
All FBA Fees
Let’s use an example
Selling Price: $25
Cost of Goods: $4.10 per unit
Cost of Shipping: $1.20 per unit
All FBA Fees: $7.70
Take the selling price and subtract the costs
25 – (4.10 + 1.20 + 7.70)
= 25 – 13.00 = 12.00
So theoretically we can spend our net income of up to $12 to get a sale and still be in profit.
To calculate our break even ACoS divide the net income by the Selling price,
ie $12 / $25 = 0.48.
This leaves us with a 48% break even ACoS, meaning that we would be making money on any keyword that has a Cost of Sale at 48% or less.
So looking again at some of my campaigns you can see that the total ACoS was 36.9% despite the fact that some campaigns were more than that and some less the overall total came to 36.9% which is under my break even ACoS so this figure is acceptable.
However I do prefer to be at break even ACoS or less for all individual campaigns so I would be paying particular attention to the individual campaigns that are showing more than my break even ACoS and try to reduce those costs to break even.
So copy this formula for each of your products.
If you just use the ACoS in the campaign dashboard, you may well be breaking even or making a profit. It is essential to know your true costs of sales so that you know that this ACoS you see in the dashboard is actually acceptable for your true profit levels.
This can make a significant difference to your profit levels and how you approach your monitoring and maintenance of your PPC campaigns.